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Here are Five Reasons to revise your Price Strategy.
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(1) Last week I wrote about research that had been carried out in the USA regarding property owners who obtain quotes for work to be carried out on their property. The results were that the quotes falling into to the top 50% of prices got 80% of the contracts. The lower 50% priced quotes only got 20% of the orders.
(2) The following research was carried out in the UK to see what peoples reactions are to higher prices: _
A group of people that like to drink wine were studied, and during the study they were linked to a brain scan to see what their psychological reaction was to being shown two bottles of exactly the same wine, but with two different prices. The trade labels were removed from each bottle, then a price label of £5 placed on one bottle and £40 on the other.
The results were that when the subjects were shown the £5 bottle, there was very little extra brain activity. Then they were shown the £40 bottle, and the brain scan showed a great deal of activity, indicating pleasure.
When the subjects were asked which bottle of wine they would purchase, almost all said they would purchase the £40 bottle rather than the £5.
(3) Both these studies go to prove that by being competitive on price will lead potential high profit customers to look elsewhere for their services/products, and businesses offering the lower prices will scoop up the most price sensitive customers, who will want to continue paying low prices well into the future. 
(4) High price high profit services obversely have to employ less resources than low price low profit services, therefor making the operational costs lower and the profit margins higher. A low price shows to people that you are desperate, whereas high prices shows that you have a high quality service that people are are lining up for, and you can give the impression that you can afford to turn people away.
(5) There are ways to trick the potential customer into accepting a higher price than normal, this is a combination Decoy pricing and price Anchoring. Here is an example where a 1/4lb burger that usually sells for $8, and the retailer wants to improve the profit margins, so they compose a price list like this:-
1/2lb burger $25
1/4lb burger $9
1/8lb burger $7
As you can see from this example, the retailer has increased the price of the 1/2lb burger by $1, but it looks a bargain compared to the other two.

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Replies

  • PRO

    Great article and nicely backed up by recent research stats ... interesting

    • PRO
      Who has done this research? Would be my question. Not saying it's wrong but just interested
  • PRO

    Why do all marketing articles make me feel like some kind of Parasite after I've read them??? The above article, I take it as being of an North American source(which doesn't suprise me), says it all really, especially item 5, ways to trick the potential customer...How immoral is that? I strive to run an honest business, to treat my staff fairly and as generous as I can, to price my projects as fairly for both parties as possible, a strategy which may not make me a millionaire, but at least I can look my clients and staff honestly in the eye when dealing with them. This kind of "Capitalism" where profit is king at all costs, surely must be resigned to the past, or am I wrong and should become a heartless money maker, driven by the drive to grab as much as possible, treading on all as I go

    • Your not wrong Michael.
      I wish this forum had a 'like' option :)
    • Item 1 was carried out by an American company, the rest are articles written in the UK for the American and UK businesses.  

      These types of articles can be seen in any business book purchased in the UK, and are taught to all students studying business in British universities. As commerce "makes the world go round", is it not better to understand how it is used?

    • The fact is Michael is that these practices are operated in many of your high street stores. Your supermarkets are stocked with items that are placed in a certain order, on specific shelves, and next to other objects in order to get the maximum attraction and the maximum profit from its consumers. 

  • So would you say it might be better to increase prices by 25% rather than 12 1/2 percent ???
    • It may be better to give a higher price when you give an estimate, but this very much depends on the benefits the customer perceives they will receive by your service.  

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